Foreign Investors Forsaking India for More Promising Emerging Markets

Foreign investors are losing patience with India’s policy paralysis, corruption scandals and slow growth. According to a report by Reuters, India is experiencing an outflow of money as investors seek higher returns in more promising emerging markets such as Indonesia.

In the words of Jim O’Neill, chairman of Goldman Sachs Asset Management, India has turned out to be the “biggest disappointment” of the BRIC nations.

Ten years ago, O’Neill came up with the term ‘BRIC’ to collectively represent the fastest growing and largest emerging economies: Brazil, Russia, India, and China.

Foreign portfolio flows into Indian stocks have dropped 99 percent to just 5.17 billion rupees since a March budget that largely disappointed investors, compared with 427.36 billion rupees in 2012 before the budget.

India, which was awarded an investment grade rating by Standard and Poor’s in 2007, is now under threat of losing it, after it received a negative credit rating last month.

According to Lipper, investors pulled out nearly $480 million from offshore India dedicated funds in April, increasing the 12-month cumulative net outflows to about $4.1 billion. In contrast, funds investing in Southeast Asia have pumped in nearly $900 million in the year ending April.

India was sold on the promise of high growth which simply hasn’t panned out over the past four years.

Since 2008, India’s GDP growth has slowed significantly while its public debt ballooned. In 2011, India’s economy grew at 8.5 percent, and public debt reached 62.4 percent of GDP, the highest among the emerging economies. Inflation in India, also, remains stubbornly high at 7.23 percent, the highest among BRIC countries.

According to Tim Condon, head of research and strategy for Asia at ING, India is losing out to keen competitors in South East Asia, such as Indonesia. He said:

You are seeing a situation where the ‘I’ in BRIC is being replaced by Indonesia.

While the size of India’s economy and population overshadows Indonesia’s, Indonesia has won favour with investors over the last few years, thanks to its sound fiscal management.

Professor at Columbia University. Recipient of the Nobel Memorial Prize in Economic Sciences in 2001 & the John Bates Clark Medal in 1979. Author of "Freefall: America, Free Markets", "The Sinking of the World Economy", "Globalisation and its Discontents" & "Making Globalisation Work".

Dr Steinbock is an internationally recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among all major advanced economies and large emerging economies. In addition to advisory activities (www.differencegroup.net), he is affiliated with India China and America Institute (USA), Shanghai Institutes for International Studies (China) and EU Center (Singapore). For more, please see http://www.differencegroup.net/. Research Director of International Business at India China and America Institute (USA) and Visiting Fellow at Shanghai Institutes for International Studies (China) and the EU Center (Singapore).